The Reserve Bank of India (RBI) has put several restrictions on loans given by non-banking finance companies against shares, asking NBFCs not to lend more than 50 per cent of the value of shares pledged with immediate effect, according to a disclosure. Currently, lending against shares by NBFC is not subject to specific norms.

The restrictions placed by RBI are to contain volatility in the capital markets as default by borrowers can “lead to offloading of shares in the market by NBFCs, thereby creating avoidable volatility in the market,” RBI said in a notification.

RBI has also permitted NBFCs with assets worth Rs 100 crore and above to accept only group 1 securities as collateral while giving loans of Rs 5 lakh and above. Group 1 securities, as defined by SEBI, are those that have traded at least 80 per cent of the days in the previous 18 months on the stock exchanges.

“Certain other associated areas of concern relate to absence of adequate prior information to the stock exchanges on the shares held as pledge by NBFCs, probable overheating of the market, over-exposure by NBFCs to certain stocks and overleveraging of borrowers,” RBI said.

The central bank has also asked NBFCs with an asset size of Rs 100 crore and above to disclose to stock exchanges about the shares pledged with them. Asking NBFCs for more disclosure is expected to end the 'unofficial margin trading', which is said to be a major source of volatility in mid-cap stocks.